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ECON 2105: TEST 3
The table that show the relation consumer willing to pay for different quantity is called?
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Demand schedule
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The demand curve is ______ sloping because?
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downward because there is a negative relation between price and quantity demanded
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Demand = _____ + ______
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Price + Quanity
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Movement along the demand curve or supply curve is affected by _______ only?
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Price |
Shift in the demand curve reflects ________
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a change in demand
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Factors affecting demand is?
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1. Income ( Normal /inferior)
2. anticipated price (Expectation)
3. Price of related goods ( Compliment/subtitute)
4. Tastes/ preferences
5. Population
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Law of demand states that?
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when price increases. demand decreases and vice versa
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The table that shows relation between which price how much the seller willing to sell is called _______
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Supply schedule
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Supple curve is ______ sloping because?
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positive relation between price and quantity
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Movement along supply curve is affected only by ?
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Price |
Factors affecting supply?
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1. Price of input
2. Expectation of seller
3. Subsidy/Tax
4. Technology
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Factors affecting demand ( P I N E T), factors affecting Supply ( P E S T)
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... |
excess demand is also called _____
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shortage |
excess supply also called
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surplus |
GGP calculates
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value of final goods and services in a country within a year
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Things that not counted in GDP
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1. used goods
2. Stocks and bonds
3. Intermediate goods
4. Foreign products
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What is intermediate goods?
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Goods and services being used as input for production of final goods and services?
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Three approaches of measuring GDP are
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1. Expenditure
2. Income
3. Adding up total values of all goods and services |
Expenditure approach calculates GDP by
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C + I + G + X - IM
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Income approach calculate GDP by
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adding up income of all factors of economy
Wage + Rents + Interest Rate + Profit
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Aggregate spending equals
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C + I + G + X - IM
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What is not included in GDP?
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1. Stocks and bonds
2. Intermediate goods
3. Used goods
4. Foreign products
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What makes Gross National products different from GDP?
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It only calculates GDP of citizens of that country
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Real GDP is different from nominal GDP because
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Real GDP use price of base year when nominal GDP use price of current year
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GDP per capita =
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GDP / population
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Why GDP per capita important?
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Because it helps to com[are standard of living between 2 countries or 2 time periods
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What is price index?
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Total value of purchasing a market basket in a given year, price index of base year always equal 100
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Price index of base year always euqals
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100 |
Consumer price index is price index of
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typical urban consumers
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Formula for price index
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cost of market basket of that year/ cost of market basket of base year X 100
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Why CPI is biased?
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1. Weight on different products
2. Doesn't count stocks and bonds or investment
3. Only takes urban consumers
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Formula for inflation rate
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(CPI 2 - CPI 1 )/ CPI 1 X 100
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what is GDP deflator ?
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Ration between nominal and real GDP
= nominal / real X 100
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Why don't we use GDP deflator commonly?
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It doesn't calculate foreign goods
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Labor force =
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unemployment + employment
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Labor Force participation rate =
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Labor force/ total working population X 100
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Unemployment rate =
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Unemployment/ Labor force X 100
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What is the different between discouraged worker and marginally attached workers
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Discouraged worker doesn't want to work while marginally attached worker wants to work
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Unemployment can be overstated because
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Frictional unemloyment
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Unemployment can be understated
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Marginally attached worker and discouraged workers
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Natural rate of unemployment equals
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Frictional + Structural unemployment
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Natural rate of unemployment in USA is
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5 %
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Frictional unemployment occurs when
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People entering or leaving jobs in search for better jobs
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What is structural unemployment
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Unemployment due to change in structure of economy
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Causes of structural unemployment
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1/ Creative destruction
2/ Minimum wage
3/ Labor unions
4/Govt policies
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What is the only cause of inflation
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Increase in money supply
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Inflation rate formula
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CPI 2 - CPI 1/ CPI 1 X 100
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Inflation rate is important because it tells you
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The rate of change
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What are cost of inflation
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1. Shoe leather cost
2. Menu cost
3. Unit of account cost
4. Economic cost
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Winner and loser of inflation
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If expected inflation is higher --> winner is lenders
IF expected inflation is lower --> winner is borrowers
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Who are not counted in labor force
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1. Jail
2. Army
3. out of working age
4. Full time student
5. Hospitalized
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Why aggregate demand downward sloping?
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1. Wealth effect
2. Interest rate effect
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Factors affecting aggregate demand
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1. Expected income
2. Expected price
3. Foreign income
4. Fiscal policy
5. Monetary policy
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Short run Aggregate supply is upward sloping because
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1. Flexible price and sticky wage
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Factors affecting long run aggregate supply
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1. Resources
2. Technology
3. Institution
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Factors affecting short run aggregate supply
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1. Supply shock
2. Nominal wage
3. Productivity
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What is stagflation, when it happens
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Inflation and low output, happens when supply curve shift left
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Why long run equilibrium is also important
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because it compare actual and potential output and how to achieve it
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Negative demand shocks will do what to long run equalibrium
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Decrease price and GDP stay the same
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Recessionary gap vs Inflationary gap
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Recessionary = actual output is lower than potential
Inflationary = actual output is higher than potential
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Expansionary fiscal policy inclused
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1. Decrease tax
2. Increase Govt spending and Govt transfer
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Contractionaryfiscal policy inclused
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1. Increase tax
2. Decrease Govt spending and tranfer
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Deficit vs Debt
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Deficit = spending higher than revenue
Debt = what govt owes
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USA, even in debt, is not in danger because
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Debt/ GDP ration is low
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What is money
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Assest can be used to purchase goods and services
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Fuctions/ Roles of money
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1. Medium of exchange
2. Unit of account
3. Store of values
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What included in M1
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anything close to money
Ex: checking account, cashier check, traveller check, money
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What included in M2
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M1 and anything near money
Ex: Saving account, money market fund, time deposit,
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How bank creates money
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by loaning out portion of deposit to other banks or individuals
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Fed controls money supply by
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selling ( decrease) and buying (increase) govt bond. This is called Open market opertion
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What is opportunity cost of holding money
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Interest rate you earn
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Roles of Fed
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1. Federal Fund Rates and Discount Window rate
2. Bank regulation ( Reserve Ratio)
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Money demand curve is ______ sloping because
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downward sloping because negative relation between interest rate and amount of money holding
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Factors affecting money demand curve
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1. Change in Real GDP
2. Technology
3. Change in aggregate price level
2. Change in insitution ( Fed regulation strictness)
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Money supply curve is shape of
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vertical because money supply is not affected by interest rate
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This model is used to tell us what will be the future interest rate
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Liquidity preference model of interest rate
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Expansionary money policy used when there is a __________
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recessionary gap
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Contractionarymonetary policy is used when there is a ______ gap
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Inflationary gap
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